The Sunday Mail
SOUTH Africans rightfully feel cheated: data prices in the country remain among the world’s highest.
The #DataMustFall campaign initiated last year did not lead to a price drop, though it did manage to raise awareness about unreasonably high tariffs that consumers are forced to cough up if they want access to the Internet.
Prepaid users can pay between 99c and R2 for 1MB of data, if they are Vodacom, MTN or Cell C customers.
Telkom Mobile has dropped its prices, making it by far the most reasonable option.
“The ceiling prices of data for ad hoc users are far too high, and are holding back more rapid uptake as well as more intensive use of data in the mass market,” says World Wide Worx MD Arthur Goldstuck.
He says data costs for lower-income users are the “real issue” the #DataMustFall campaign and other critics missed.
Most low-income earners use prepaid services. These costs are much higher than bundles and contract rates.
Mergence Investments portfolio manager Peter Takaendesa agrees the major drivers of high data charges remain excessive out-of-bundle charges and very high rates per unit (MB) on smaller data packages — mostly used by low-income users.
Those higher charges are ultimately a function of a market dominated by two mobile operators — MTN and Vodacom.
“Smaller operators can be aggressive on pricing but they lack distribution and network coverage scale to force prices down materially,” says Takaendesa.
Research ICT Africa (RIA) compared the price of 1GB of data in 50 African countries and found that SA’s average price in the third quarter of 2016 was US$7, putting it in 22nd spot.
The cheapest was Mozambique, where Vodacom operates, with an average price of $2,27, followed by Tanzania at $2,39 and Ghana, where MTN operates, at $2,54.
The cheapest data bundle offered in SA (for 1GB) is from Telkom, on its FreeMe Boost package (R99).
Its competitors charge from R150 for a similar bundle.
Network operators also have a range of promotion-price packages, which have made data usage soar in recent years.
These promotions have created an impression that data prices are coming down.
RIA also stated in a report that SA data users, especially those in the lower-income category, are spending about 20 percent of their income on relatively small amounts of data (1GB).
That does not go far, as websites and apps use significantly more data than they did a few years ago.
Vodacom stated in its 2016 annual report that the recent decline in mobile voice revenue had been more than
offset by growth in data revenue, fuelled by the uptake of smart devices, better network coverage, more affordable data bundles and enhanced digital content.
About 41,6 percent of its individual users pay on a monthly basis using fixed-term contracts (“postpaid”), while the balance buy their airtime on a “prepaid” basis.
Mobile network operators are spending billions to expand their network to improve quality and capacity.
But how much does it cost them to provide data?
The companies have been reluctant to disclose their data costs as a standalone offering. They argue most costs are shared with their traditional voice business.
But Takaendesa says another way of looking at it is that margins have actually improved, as data revenue contribution has grown over the past few years.
Vodacom SA’s earnings, for example, are higher. Earnings before interest, tax, depreciation, and amortisation (Ebitda) margins have gone up to 40 percent now, compared with 37 percent in 2011. “Yes, they have invested more in the network to achieve data growth, but the numbers suggest data revenue remains very profitable for the leading SA mobile operators,” says Takaendesa.
Without a change in the structure of the market dominated by the two companies, it is unlikely prices will come down materially. But Goldstuck believes that return on investment is not the issue.
He says mobile companies are still trapped in 20th century thinking, which builds the mobile operator business model on voice and treats data as an add-on.
Networks should be conceived on a data-first basis, with voice as an add-on, and the future data needs of consumers should be taken into account rather than past behaviour being extrapolated.
If this were done, different business models would emerge, says Goldstuck. “The mobile network operators are enabling the digital world of the future, but they don’t understand their role, the future or the potential that digitisation has for their businesses.
“They think of the future in accounting terms rather than with a visionary mindset, and that is holding back both the operators and their customers,” he says. — Financial Mail SA.